There “is” a context here, and it is an important one. The so-called “Hill Lines” were, in fact, “imploding” during the 1960s. Looking back at “actual analysis” done at that time, it is clear WHY the Northern Lines folded to all of Milwaukee Road’s demands in 1968.
Best regards, Michael Sol
Therein illuminates “the problem.” Most commentators don’t actually know what they are talking about, but …
When William J. Quinn came over from being Vice Chair of the Burlington Northern, he was determined that the Milwaukee Road should not exist. His first task to accomplish that goal was to fold the RR into a Holding Company, leverage the assets of the railroad to disinvest into non-railroad properties and, voila, “Chicago Milwaukee Corporation!”
Then, when that was finally accomplished in 1972, he set about trying to fold the Milwaukee into the Burlington Northern. But, after the Penn Central debacle in 1970, no one, at that time, was confident that the so-called “Northern Lines” would be able to 1) reverse their own well-documented and catostrophic collapses in their Operting Ratios, and partcularly on the GN, where its historic strength – iron ore mining in Minnesota – was beginning to “play out” in the 1960s.
And, that can plainly be seen in GN’s own collapsing Operting Ratio 1960-1969.
Best regards, Michael Sol
Hill was “scared to death” that somebody might acquire the NP after its 1893 Bankruptcy. Despite its bankruptcy, it carried over twice the volume of traffic as the GN – “out West.” And therein is the historical marker: Seattle and Tacoma had little developed foreign trade, and d— little domestic trade. When the Panama Canal opened, who LOST traffic? Well, GN and NP. GN’s strength, a big one, was iron ore haulage in the upper Midwest.
Hill managed to pursuade NP’s Reorgnization Manager, JP Morgan, that in the face of Morgan’s own disaster there – having to subject all of the NP Land Grants to the 100 Year Mortgage Bonds, which completely defeated the whole point of the Land Grants in the first place – Hill’s better option might be to buy up all of the nearly worthless stock. NP had, after all, gone bankrupt TWICE! Morgan advised Hill that if he was really that desperate to control the NP, an erstwhile competitor, he had better control an entry into Chicago as well.
Hill believed the Milwaukee had the far better route, which it did, but Milwaukee Road owners Wm Rockefeller and H.H. Rogers weren’t interested in selling. So, Hill and Morgan were forced to turn to Hill’s second choice, the Burlington, whose primary owner, Charles Perkings, was, in fact, retiring and selling out at that time.
As Rogers told his stockbroker at the time, Thomas Lawson, and as recounted in his book, “Frenzied Finance,” (1905), "It won’t be long before we wo
Well, here is the funded debt for the “Northern Lines” as of 1969: $813,959,000. BN 1969 Annual Report, p. 18.
Great Northern, 1968, “funded debt,” Miles of road, 8,8277, Annual Report, p. 20, $266,100,000.
Here is the funded debt for the “Milwaukee Road” as of 1969: $252,682,633. Milwaukee Road Annual Report, 1969, p. 17.
On that basis alone, BN with three times the “main line” mileage as Milwaukee Road, the two compnies had roughly equivalent debt loads.
Comparable RRs that did NOT build West
Chicago & North Western, 1970, 2,858 miles “main,” Moody’s 1976, p. 559, $265,178,335.
Chicago, Rock Island & Pacific, 4,547 miles “main,” 1970, Moody’s 1976, p. 75, $120,067,521.
Not the Milwaukee, but an interesting read on the battle for the Northern Pacific.https://muse.jhu.edu/book/27303
Yet, for all this talk of how well the MILW was doing and how it was trouncing everyone, it failed.
+1
Is there a moral to that story, or a message we can all learn from? If so, what is it? [:)]
Best regards, Michael Sol
Like Joe Friday would say “Just the facts, ma’am”.
I appreciate all the data you include, as opposed to some who can only snipe because it comes from you or because they need the PCE as a scapegoat for why the Milwaukee Road failed beyond the obvious factors of loss of traffic and mismanagement.
Amazing, isn’t it?
The smugness today was certainly not evident when the mighty Penn Central collapsed in 1970, taking down numerous smaller roads with it, and engendering the “Midwest Rail Crisis” of the 1970s, prompting first the 3R Act and then the 4R Act as Congress desperately attempted to prevent the Penn Central “train wreck” from engulfing and consuming the big Midwestern roads, the Rock Island, the North Western, the Illinois Central Gulf, the Milwaukee, and even the BN itself, stuck with its legacy Burlington, which gave BN the third largest deferred maintenance backlog in the nation!
Indeed, by 1979, the BN was staggering under a 95% Operating Ratio, almost exactly what I had predicted in … 1970 if the trends of the 1960s at the consolidted Northern Lines did not change.
And, impressively, that prediction for the BN, a collapsed Operting Ratio, turned out to be to conservative. It was worse. Take that graph and put it up to 95%. Literally, “off the chart!” Ouch!
On the other hand, no one predicted that the Milwaukee management would be replaced, en masse, by officers from the Burlington Northern.
It was not pretty, what the thoroughgoing “management expertise” from the Burlington Northern was when apllied to both railroad companies. It is a small irony that “BN Management” survived longer at the Milwaukee than it did at the BN
And I appreciate your considerate remarks.
“At the time,” in the middle of all of this, one good thing that Trustee Stanley Hillman did was to hire outside consultants. I don’t know that he had a particularized suspicion that the information that he was receiving from the ex-BN people then running the Milwaukee was “just plain wrong,” or not, but that is what the outside studies showed: what Hillman had been told about the Milwaukee and its dire straits (he had been told both the the officers and the accountants ar CMC that the net value was $0) was in fact the opposite of the truth.
I asked VP Paul Cruikschank about that, and the answer came back, “Yes. Mr. Hillman became very difficult to work with. He quit and we were glad when Mr. Ogilvie replaced him.”
What Ogilvie set in motion was the near unanimous opinion of knowledgeable people in the rail industry that the Milwaukee Road’s strength was its beautiful transontinental route and its previous acquisition of the dominant carrier of the high end transontinental freight.
And that Booz, Allen, Hamilton report is what opened up Hillman’s eyes. Of the eight possible reconfigurations of a reorgnized Milwaukee Road, the four that were based solely around Midwest configurations were not likely to be profitable. The four configurations based around continuing operation of most or all of the transcontinental configurations, and one of those, the “Louisville Transcon” proved in the study to not only be the fastest to return to profitability, but that ultimately, because of the Milwaukee’s strong position out West. it was likely to be at least three times more profitble than any other.<
Just prior to the Bankruptcy, the Milwaukee Road had done a laborious internal study, and produced a proposed new System map that looked a lot like the BAH proposed “Louisville Transcon” proposal.
Best regards, Michael Sol
P. 142 of the Booz Allen Hamilton study. Profitability Projections of Eight Proposed Reorganization Alternatives, Milwaukee Road, 1978
Best regards, Michael Sol
No active links were in the post.
During the largest coal haulage traffic expansion in BN’s history 1972-1979, due to expansion into the Powder River Basin, initially constructed in 1972 in which BN was able to obtain BOKU financing for an even larger line build during the decade of the 1970’s but the C&NW was not. Yet you put BN and C&NW in the same financial class.
Make sure you look at their cost projections for rehab and improvement closely. Even in 1970 dollars they are way too low. I’ve worked with Booze Hamilton and still work with them distantly today. They are rather sloppy in their proposals and fail to include items or projections of significance. They manage to survive as a consulting company as they are skilled at gift wrapping a turd so to speak. Notice the subtle implication they knew what they were talking about but Milwaukee Road management did not. You’ll note the complete absence of the competing internal Milwaukee Road study along similar lines, which I find to be far more realistic and far less dreamy in wishful thinking. The Milwaukee Study even looked at a bare bones rehab of 90lb welded rail, knowing full well it would eventually need over 100 lb rail. It’s costs with just the 90lb rail proposal and keeping curves and grades as is was prohibitively expensive and could not easily be recouped using existing traffic levels. So Milwaukee management was trying to see how vs. downplaying the PCE as not being a winner.
Lets say Milwaukee went ahead with this. It had just completed a costly tunnel revamp I believe for Tri-Level Autoracks but did not raise the clearence enough for double-stacks. A lot of the Milwaukees bridges and trestles would need to be reinforced as well for the heavier car loads as well as heavier locomotives. The Powder River traffic was already strengthing BN in it’s competitive position as well. I do believe it shared some of it with Milwaukee in the 1970’s but only for the short haul to reach power plants on Milwaukee’s lines. I don’t see in any reality how the Milwaukee could have revamped it’s lines wes
This thread.
The PCE was built without management input? Who stated that in the past? If it was built at the behest of management then in fact it was a bad management decision right? As far as loss of traffic, no proof has been provided that traffic existed in the first place to support construction costs. In fact the actual construction cost was disputed over figures presented elsewhere on the internet but again…nothing to backup which figure was correct. Internet figure or figure presented in this thread.